A small army of financial advisors from the National Association of Insurance and Financial Advisors (NAIFA) will convene before lawmakers today to voice their concerns regarding the proposed broadening of fiduciary standards for retirement accounts.
Every year, financial advisors descend on Washington for the NAIFA Congressional Conference. But with the Department of Labor (DOL) having released new standards last month, NAIFA took the opportunity to have its rank and file give federal lawmakers a piece of their mind.
The fortuitous timing — for NAIFA at least — of the proposed fiduciary rule’s release in mid-April appears to have worked in NAIFA’s favor as advisors from all 50 states are expected to attend the organization’s annual Congressional Conference.
“Members are pretty fired up to share their stories,” NAIFA President Juli McNeely told InsuranceNewsNet last week.
With about 800 financial advisors flocking to the nation’s capital, the conference is one of the largest gatherings of advisors during the year.
McNeely said NAIFA members are scheduled to visit DOL administration officials in the morning before making their way to Capitol Hill where they will meet with congressional lawmakers.
NAIFA leaders met with White House and DOL officials May 4 to discuss advisor concerns about the DOL’s proposed “best interest” rule for retirement plan advice.
The rule increases the cost of doing business for advisors and limits access to advice for investors, NAIFA officials say.
Under the proposed regulation and the new “Best Interest Contract” exemption, advisors covered under the prohibited transaction exemptions would be able to receive commissions, revenue sharing and fees, but only under very strict conditions.
McNeely said advisors are often approached on airplanes or at parties about investments. The rules proposed by the DOL “might hinder advisors from any kind of conversation,” and advisory may see an increase in errors and omission liability premiums, she said.
Commission-based advisors who follow a broker/dealer revenue model say they will simply not be able to serve clients profitability if the DOL’s proposal is adopted as they would gravitate toward fee-based models.
Advisors add that doing away with commission-based revenue models will shut out small individual retirement account investors and many employee-sponsored retirement plans sponsored by small businesses from receiving valuable retirement advice.
DOL officials say the fiduciary-based advisory system, which is grounded in a fee-based revenue model, is preferable because it eliminates the temptation of advisors to steer clients into products from which advisors earn a commission.
Officials also maintain that retirement advisors are operating under rules that were crafted during an era when defined benefit retirement plans were common and employees received professional advice through corporate pensions.
Since 1975, when the Employee Retirement Income Security Act (ERISA) was born, the defined contribution model embodied by the 401(k) has eclipsed the steady income provided by corporate pensions.
Tens of millions of retirement investors are on their own in a way they were not a generation ago, and that trend is only going to increase.
Earlier this month, the DOL relented under pressure from the industry and members of Congress. The department agreed to extend the comment period on the proposal for another two weeks, even though some financial groups said two weeks was not enough.
The original deadline had been set for July 6. The department will hold a public hearing in early August, after which it will solicit more comments.
It is the second time in five years that the DOL has issued rules regarding advice to retirement plan investors.
In 2010, the DOL issued a similar proposal but withdrew it after industry opposition.
Lobbying disclosures reported recently in a trade publication show NAIFA spent $721,220 on lobbying in the first quarter, an increase from $649,328 in the first quarter of last year.
The Securities Industry and Financial Markets Association spent $1.98 million in the first three months of the year, an increase from $1.86 million compared with the year-ago period.
The Financial Services Institute, which represents independent broker/dealers and financial advisors, spent $213,524, an increase from $168,125 compared with the first quarter 2014.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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